How did you get educated about money when you were a kid? Maybe your parents handed you a few shekels to swing by the grocery store for milk. After getting through the checkout and counting out the change, maybe you stuffed the rest back into your pocket and headed home with a small profit.
Today, educating kids on how to manage money is changing fast. As technology around payments and money management has evolved, transactions are often no longer tangible. Cash is becoming less common and learning to become financially savvy is beginning to take a much different shape than in the past. Starting a conversation to educate your kids early, and building growth can help them navigate the world and their finances successfully.
As post-millennial parents, your kids always come first. This also means prioritising your finances to accommodate your child, and educating them as they grow up to be financially savvy. By age 7, kids will already have habits that will translate into their adulthood and finances. Make sure you prepare yourself to educate your kids regarding proper money matter management in all relevant aspects.
Explore resources when raising your child to ensure your finances and your kid’s finances are always in the best shape.
Educate Kids About Money in Elementary School and Earlier
These strategies are appropriate for very young children. You can do some, like talking openly about money around your kids, at a very early age. Others need to wait until kids are old enough to manage small sums of money on their own to mimic the experience of both spending and saving money.
Educate Openly About Money With Your Kids
Time and again, you hear the same refrain. It’s never too early to start discussing money with your kids. Take this logic one step further and resolve to speak openly about money with and around your kids from a young age. Feel free to discuss sensitive financial matters, such as salary negotiations and the status of your retirement accounts in the presence of your kids.
Talking about money around young children might feel awkward at first, but there’s no good reason to shoo them out of the room so the grown-ups can have a frank discussion. And if you’re worried about them sharing the details of these conversations far and wide, emphasise that financial specifics are fine to discuss in the home but aren’t appropriate to divulge to friends, teachers, or random people at the supermarket.
Young kids might not understand everything you discuss, but that’s okay. They don’t understand all the words in the stories you read with them either. That doesn’t stop you because you trust they’ll pick more up with repetition and age.
Lead Kids by Example
You’re your kids’ most visible and vital role model. That may change during their rebellious adolescent years, but they’re all yours during elementary school.
By visibly following through on the fiscal wisdom you dole out to your kids, you show them it’s possible to live within your means. Kids are perceptive, and they often pick up on cues even when you don’t explicitly call them out. But your message will ring clearer and stick longer with good-natured repetition.
So when you want to convey a money management concept to your child, explain why and how you’re doing it. And look for teachable moments wherever you go. Mundane activities like shopping outings are ripe for reinforcement. It takes just a few seconds to explain to your kid why you chose the cheaper generic option over the functionally equivalent name-brand option.
Give Them Fake Money
It’s not as cruel as it sounds. Fake money teaches young kids about the value of money without entrusting them with any hard-earned cash. Think of it as training wheels for budding consumers, with you (the parent) playing the dual role of banker and merchant. Toy guns may now be politically incorrect, but board games that feature money exchanges inevitably excite children of all ages and are trainer wheels for capitalistic impulses.
Set reasonable values for various chores, cleaning up after a meal, privileges stretching bedtime, and things they want snacks.
Avoid an Open-Wallet Policy
Don’t give your kids an open line of credit. Instead, set constraints on spending money, even if you can’t help spoiling them occasionally.
You’ve gotten used to telling your kids no on other matters. Putting your foot down on requests for cash or parent-aided purchases like video games and candy at the grocery store is no different. It’s essential to lay out this marker early in your kids’ financial education. The longer you wait, the harder old habits will die.
How hands-on you’d like to be is up to you. You can go so far as to set up a household bank – not a real bank account, but a pile of money you and your kids know the balance of. This way, your kids know exactly how much they can spend each week or month, and they won’t be surprised when they hear no. Over time, they’ll realise they have to save up for bigger purchases.
Be Equitable and Pay Kids Fairly for Age-Appropriate Chores
If you dole out an allowance to young children without requiring work, ensure it’s equitable on an age-weighted basis – you can give raises every year or quarter. If you pay wages for chores, assign equal amounts of work and an equal pay rate.
Sadly, the gender wage gap has come for kids too. According to data from BusyKid, a personal finance app for kids, girls receive less than half the weekly allowance given to boys, a starker divide than the gender pay gap for adults. That’s unfair and inconsistent with the principle that every kid deserves the same chance to succeed.
Eventually, extenuating circumstances might render equitable financial treatment impractical. For instance, you probably need to provide more support to a kid who gets into an ivy league university than one who enrols in a technical certificate program at the local community college. But that’s likely years off. We’re talking about kids in elementary school here. There’s no reason not to start your little ones on a level playing field.
Don’t Compensate for Tasks Kids Have to Do Anyway
A well-designed household chore schedule is a win-win. For parents, it’s a dumping ground for mundane, low-value tasks for which they lack the time or patience. For kids, it’s a buffet of practical earning opportunities and a long, low-stakes introduction to the sorts of rote tasks they’ll soon enough need to complete on their own.
Just resist the temptation to unduly relax your definition of a chore to draw in tasks your kids have to do anyway, like cleaning their room or keeping play spaces clean. Even in elementary school, your kids’ chores should be at minimum jobs that benefit everyone in the household, such as washing all the dishes after a family meal, dusting the entire house rather than just the kids’ rooms, or cleaning and vacuuming floors throughout the home.
The goal is to only compensate kids for jobs you’d otherwise have to do yourself or pay someone from outside the household to do. In effect, you’re hiring your kids to do these tasks and teaching them the value of a dollar in the process. Just be sure to pay them enough to encourage them to look forward to or at least not actively avoid these assignments.
Use Praise and Tough Love
Use a combination of praise and tough love to instill financial discipline in your brood. When your kid makes a deposit into your household bank or tucks a dollar bill away for a future purchase, tell them they’re doing the right thing. If you’re feeling exceptionally generous, throw in a low-cost treat, like an extra half-hour of screen time that evening.
You can also encourage your kids to make sound financial decisions by reminding them that by spending today, they’re deferring or forgoing future purchases they may value more. Don’t punish them for overspending. Just make it crystal-clear what they’re missing and remind them of that when they run out of money for something they want.
Educate Kids About Money in Middle School
These strategies are best for kids old enough to understand more complex financial concepts that are fundamental to financial literacy, like balancing a checkbook and managing debt.
Open a Custodial Bank Account for Them Early
Once you trust your kids enough to make their own spending and saving decisions without the aid of a piggy bank or closely supervised app like Greenlight, open a custodial bank account in their name.
There’s no real downside to setting up a bank account early, given that your joint account opens a whole new world of teachable concepts. But younger kids won’t participate as actively in account management and may not take any interest at all.
Cross this item off your list by the time your kids hit tweendom, say, 10 or 11 years old, to give them plenty of time before high school and hopefully their first job outside the home to get up to speed on banking.
Get Them Excited About Money Management
Now’s the time to get your kids jazzed about something — anything — that involves sound financial decision-making.
For example, though chequebooks are obsolete , some personal finance experts recommend ordering cheques on joint accounts anyway. Balancing a chequebook helps demonstrate basic money management concepts.
If your family regularly donates to non-profit organisations, get your kids involved in the process of selecting recipients and setting aside funds for quarterly or year-end giving. More likely than not, they’ll embrace the purpose-driven nature of the exercise. Nothing conveys the power of a dollar like seeing firsthand its potential to do good in the world.
Educate Kids About Money in High School and Beyond
Roll out these strategies as your money management cadets approach adulthood. Before they get their first job or head off to college or both, they need to understand the basics of budgeting, taxes, borrowing, and investing.
Educate Them About Taxes and Accounting
Millions of kids work part-time in high school. Before they take their first tentative steps into the labor market, they need to understand the difference between gross pay and net pay. So it’s time they learn that earning money means paying taxes.
If you use a human accountant to prepare your household’s taxes, take your child to this year’s appointment. That way, kids learn that even parents must make financial tradeoffs and that not all the money you earn is yours.
If you prepare your taxes online, show your kid how the process works. If you or your kid don’t have time to complete the process in one sitting, just show them the ropes as you can. If your family uses a certified financial adviser or financial planner, loop your kids in on your financial planning meetings too.
Educate Children About the Importance of Avoiding High-Interest Debt
Many parents discourage kids from using credit cards altogether. That’s a perfectly valid approach to financial education and one that keeps them away from one of the most common drivers of consumer debt altogether.
Even if you’re fine with your kids using credit cards when they’re old enough, have the debt talk with them before co-signing a credit card application or student loan, particularly warning them about the risks of carrying high-interest balances from month to month.
The debt talk isn’t just appropriate for budding credit card users. You can also use it to warn kids off uglier forms of debt too, such as predatory payday loans. It shouldn’t be a difficult sell, given the litany of consequences of bad credit: higher interest rates, higher car insurance rates, trouble renting an apartment or securing a cellphone contract, difficulty securing a job, or obtaining a security clearance.
Anyway, sound credit management practices are sound money management practices. Every dollar your kids don’t have to pay toward a carried credit balance is a dollar they can sock away so it can earn interest in a savings account or grow in an investment account.
Help Them Budget and Apply for Student Loans
Applying for student loans and budgeting for post-graduation repayments are likely to be among your kids’ least favorite financial exercises, but they’re a piece of the financial education puzzle. Kids who aren’t prepared to set aside significant chunks of their take-home pay for student debt simply aren’t set up for frugal-living success.
Help Them Build Credit and Introduce the Importance of a Good Credit Score
It’s never too early to begin building credit for your kids. One easy way to help your teen build credit is to add them as an authorised user on your credit card. If and when they apply for private student loans, add yourself to the loans as a co-signer. The lender might require applicants with limited credit histories to have a co-signer anyway. For many young people, a student credit card is the first credit card they open. That’s because most student cards give college students enrolled in a two- or four-year college the chance to build credit. Some even let them earn rewards and receive student-centric benefits.
As you set them off on their credit-building journey, ensure your teenagers understand why it’s crucial to build and maintain good credit in the first place. Help them understand the real-world consequences of bad credit, like higher insurance premiums and problems finding quality rental housing, surely a top-of-mind concern for kids looking ahead to independent living.
Show them how to check their credit score with consumer credit-reporting bureaus or consumer finance platforms like Credit Karma. Make sure they know they’re entitled to one free credit report per year from each bureau. And give them tips to improve their scores over time, like maintaining low credit balances and using free score boosters like Experian Boost.
And while encouraging them to maintain a good credit score at all costs, let them know that if they do stumble, then they can get help from a reputable credit repair company.
Is Crypto a Safe Activity For Teenagers?
Recently some teenagers have been asking their parents if they can have a cryptocurrency account.
For some parents it’s too confronting, but if a teenager is given strict guidelines about limits to amounts they can invest, and they’re prepared to be closely supervised, even with casual questions two or three times a week asking them what their balance is, then this can be a positive and enjoyable experience for both the teenager and parent.
While not every teenager will be as successful as teen crypto millionaire Erik Finman, even small gains can create excitement, and in a world where teenagers so often communicate with their parents in grunts and monosyllables, it’s one avenue which can open a teen up to much more enthusiastic and regular conversation.
Educate Them the Three Types of Personal Savings
Before they leave the nest, ensure your kids understand the three primary types of savings:
- Personal savings
- Emergency funds
- Retirement savings
Give them an overview of each type what it’s for when to contribute, why it matters to their savings goals, and when to draw upon it.
Help Them Set and Achieve Goals
As kids get older, parents can help them set goals but another factor that can be beneficial in helping them achieve those goals. Gives the example of a kid saving up for a winter ski trip: the parents can match their savings by the dollar to help them make it happen.
By helping them, kids understand to pay close attention to opportunities. And number two, it also helps them have some skin in the game and understand how much time goes into saving all that money.
Final Word
Kids are like snowflakes. They’re all different. So are parents.
As a parent, you have wide latitude to educate your kids on the value of money and instill sensible money habits.
However you choose to provide your kid’s financial lessons, never forget it’s also in your interest to ensure that they know how to manage and grow their own money in the real world for years to come. After all, you might rely on your kids’ thrifty habits to support you long after you hang up your working hat for good.
